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S Korea Q4 household credit rises at fastest pace in nearly 9 yrs

[SEOUL] South Korea's household credit grew the most in nearly nine years in the October-December quarter, central bank data showed on Wednesday, accelerating for the sixth straight quarter thanks to record-low interest rates.

Household credit during the fourth quarter of last year, including loans and other credit owed by South Korean households, was up 11.2 per cent on-year, or 121.7 trillion won (S$139 billion) to a total of 1,207.0 trillion won, the Bank of Korea's preliminary data showed.

The growth in credit quickened from an increase of 10.4 per cent in the third quarter of last year and was the swiftest since an 11.3 per cent jump in the first quarter of 2007.

The data may dampen the market's consensus view for another rate cut as soon as March, as the fast growth in household debt has been cited as one reason why the Bank of Korea has refrained from cutting interest rates from the current record-low of 1.50 per cent.

Policymakers have said they do not see household debt developing into a financial risk anytime soon. Finance Minister Yoo Il-ho said in a press conference on Monday the government is focused on improving the structure of debt and has no plans to rein in volume.

Household borrowing has been on a steady rise in recent years as the BOK lowered its policy rate four times between August 2014 and June last year in its efforts to prop up economic growth in Asia's fourth-largest economy.

Wednesday's data showed South Koreans have been taking advantage of lower interest rates to load up on their borrowings, with household loans in December up 11.4 per cent from a year ago to 1,141.8 trillion won, compared to the third quarter's 10.4 per cent gain.

Growth in household loans in the December quarter was the fastest since an 11.8 per cent rise in the fourth quarter of 2006.

The outstanding amount of purchases on credit, which also makes up a part of the household credit balance, rose 8.1 per cent in the December quarter in annual terms, slowing from a 10.5 per cent rise in the third quarter.